Competition conditions and competition policies in Central America Claudia Schatan Three Aspects that make competition particularly difficult in Central America Small market size: natural monopolies and oligopolies exist in several markets Economic reforms implemented -trade liberalization, price deregulation, and privatization - before counting with appropriate competition policy. Domestic and foreign capital flow deregulation and privatization took place without legal and institutional framework to avoid anti-competitive practices by national and multinational firms. Progress in competition policy in recent years Costa Rica and Panama have competition laws and a Commission to implement it (COPROCOM and CLICAC). They still have limitations, for example: Enterprises do not need approval by Commissions to merge. Law application is also limited because state monopolies are exempted from it. El Salvador, Guatemala, Honduras and Nicaragua have faced considerable political obstacles to pass such law, although all of them have competition law projects being discussed in their congresses. Progress in competition policy in recent years All countries have a consumer protection entity that works reasonably well (greater information for consumers is needed). Various measures have been taken to improve the conditions under which the economic agents operate. They include administrative simplification to set up a new enterprise, among others. Competition from abroad Imports are a very important source of competition and may help create “contestable” markets in the region. Institutional framework in charge of domestic and international competition are not linked. Antidumping policies and anti-monopoly policies are handled by entities that have little relation with each other in most countries. Antidumping policies are seldom used by C.A. countries because of lack pof information, lack of resources, lack of specialized personnel, etc. Obstacles for competition policies The regulation system that has promoted crossed subsidies, specially for public services, has created great price distorsions in the market, particularly for some industrial sectors. But rebalancing of tariffs has to be done carefully not to hurt marginal social sectors. There is not enough coordination between regulation and competition policies. Competition policy must rely on ordinary justice for some of the cases it handles and such instance is not prepared to manage them adequately. Privatization has often been carried out through special treatment to foreign investors, guaranteeing dominant or monopolistic position in the market. Challenges for competition policy Three sectors were studied in detail: Cement, sugar and fertilizers: These products have the following common characteristics. They are all commodities: Homogeneous products Uniform quality standards Standardized technologies Collusion is easier among firms that produce commodities. Challenges for competition policy Transport and storage are expensive for all three products and, hence, can give way to a geographic market distribution among firms. Wide demand of these good; form part of basic consumption of the population (fertilizers indirectly through food). Cement Privatizations together with acquisitions and mergers, vertical integration. Large multinacional conglomerates have taken dominant positions in the market: CEMEX and Holcim. Technical innovations, cost reduction (energy, water), better distribution facilities. Since prices were deregulated they have tended to rise and are among the world’s highest. Sugar Strong national cartels worldwide and international market segmentation. All countries of the region consider this product as strategic because of employment generated as well as its weight in diet of population. Highly protected, regulated and inefficient in C.A. Escapes most competition policy tools (in Costa Rica, the specific law that regulates sugar is placed above the competition law). Fertilizers Trade liberalization and deregulation was carried out before adequate product standards and ways to guaratee their application were established in each country. Prices have fallen, and so have quality of agrochemicals (“generic” products introduced). Food consumers are negatively affected for lack of effective regulatory framework. Conclusions It is urgent to create (or strengthen) laws and institutions that promote competition within national markets in Central America. Those sectors that are closely influenced by international markets and foreign capital flows require a legal framework which may allow them to act in cases of collusion between national and international enterprises or among international enterprises that may distort national markets. Greater coordination between economic policy, regulatory and competition policy; and trade policy should be reached to avoid too much deregulation leading to unfair trade (fertilizers); too much regulation and protection (sugar) leading to inefficiencies; etc.. The capacity to act internationally against trade competition restrictive practices requires an active collaboration among countries, particularly if these are small.